The main U.S. stock market indexes lost 0.6-0.8% on Wednesday, breaking below
their recent consolidation, as investors took profits off the table following
November - December rally. The S&P 500 index remains close to its nearest
important support level of 2,250. The next important support level is at 2,200-2,220.
On the other hand, resistance level is at around 2,275-2,280, marked by December
13th record high of 2,277.53. The market continues to trade along its medium-term
upward trend line. Is this a topping pattern or just flat correction before
another leg up? There have been no confirmed negative signals so far. However,
we can see technical overbought conditions along with some negative divergences:

Expectations before the opening of today's trading session are virtually flat.
The European stock market indexes have lost 0.1-0.3% so far. Investors will
now wait for the Initial Claims number release at 8:30 a.m. The S&P 500
futures contract trades within an intraday consolidation following yesterday's
move down. The nearest important resistance level is at around 2,250, and the
next level of resistance is at 2,265-2,270, marked by previous consolidation,
along with some local highs. On the other hand, support level is at 2,220-2,230.
For now, it looks like a flat correction within a short-term downtrend. The
market is below its recent trading range, as we can see on the 15-minute chart:

The technology Nasdaq 100 futures contract follows a similar path, as it currently
trades within an intraday consolidation along the level of 4,920. The nearest
important support level is at 4,900. On the other hand, resistance level is
at 4,930-4,950, marked by previous level of support, as the 15-minute chart
shows:

Concluding, the broad stock market broke below its short-term consolidation
yesterday, as investors took profits off the table. However, the S&P 500
index remains close to 2,250 mark, while continuing to trade along its medium-term
upward trend line. We still can see technical overbought
conditions. Therefore, we continue to maintain our speculative short position
(opened on December 14 at 2,268.35 - opening price of the S&P 500 index).
Stop-loss level is at 2,330 and potential profit target is at 2,150 (S&P
500 index). You can trade S&P 500 index using futures contracts (S&P
500 futures contract - SP, E-mini S&P 500 futures contract - ES) or an
ETF like the SPDR S&P 500 ETF - SPY. It is always important to set some
exit price level in case some events cause the price to move in the unlikely
direction. Having safety measures in place helps limit potential losses while
letting the gains grow.

To summarize: short position in S&P 500 index is justified from the risk/reward
perspective with the following entry prices, stop-loss orders and profit target
price levels:

Stock market strategist, who has been known for quality of his technical and
fundamental analysis since the late nineties. He is interested in forecasting
market behavior based on both traditional and innovative methods of technical
analysis. Paul has made his name by developing mechanical trading systems.
Paul is the author of Sunshine Profits'
premium service for stock traders: Stock
Trading Alerts.

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